Garneau Manufacturing Ltd. produces and distributes a special type of chemical compound called Compound WX. The information below about Garneau€™s operations has been assembled to assist budget preparation. The company is preparing its master budget for the first quarter of 2016. The budget will detail each month€™s activity and the activity for the quarter in total. The master budget will be based on the following information:

a. Selling price is $60 per unit in 2015 and will not change for the first two quarters of 2016. Actual and estimated sales are as follows:

b. The company produces enough units each month to meet that month€™s sales plus a desired inventory level equal to 20% of next month€™s estimated sales. Finished Goods inventory at the end of 2015 consisted of 2,200 units at a variable cost of $33 each.
c. The company purchases enough raw materials each month for the current month€™s production requirement and 25% of next month€™s production requirements. Each unit of product requires 5 kilograms of raw material at $0.60 per kilogram. There were 13,500 kilograms of raw materials in inventory at the end of 2015. Garneau pays 40% of raw material purchases in the month of purchase and the remaining 60% in the following month.
d. Each unit of finished product requires 1.25 labour-hours. The average wage rate is $16 per hour.
e. Variable manufacturing overhead is 50% of the direct labour cost.
f. Credit sales are 60% of total sales. The company collects 50% of the credit sales during the first month following the month of sale and 50% during the second month.
g. Fixed overhead costs (per month) are as follows:
Factory supervisor€™s salary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$75,000
Factory insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400
Factory rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
Depreciation of factory equipment . . . . . . . . . . . . . . . . . . . . . . . 1,200
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,550
h. Total fixed selling and administrative expenses are as follows:
i. Variable selling and administrative expenses consist of $4 for shipping and 10% of sales for commissions.
j. The company will acquire assets for use in the sales office at a cost of $300,000, which will be paid at the end of January 2016. The monthly depreciation expense on the additional capital assets will be $6,000.
k. The balance sheet as of December 31, 2015, is as follows:

Additional information is as follows:
€¢ All cash payments except purchases of raw materials are made monthly as incurred.
€¢ All borrowings occur at the beginning of each month, and all repayments occur at the end of the month. Borrowings and repayments may occur in any amount.
€¢ All interest on borrowed funds is paid at the end of each month at a rate of 0.5% per month.
€¢ A minimum cash balance of $30,000 is required at the end of each month.
Required:
1. Prepare the following budgets for each of the first three months of 2016:
a. Sales budget.
b. Production budget.
c. Raw materials purchases budget.
d. Direct labour and manufacturing overhead budget.
e. Selling and administrative budget.
f. Cash budget.
2. Prepare a budgeted income statement for each of the first three months of 2016 and a budgeted balance sheet as at March 31, 2016.

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Actual 2015 Estimated 2016 November: 10,000 units December: 12,000 units January: 11,000 units February. 10,000 units March: 13,000 units April: 1,000 units May. 10,000 units